How big of a mortgage can i afford?

How much you can afford for a mortgage depends on how much you are willing to pay. There is what a lender can qualify you for (pre qualified/pre approved) compared to what you are willing and able to pay (affordability). These are two different calculations. Assuming you are qualifed for a loan how much is too much? Most home buyers should not pay more than 50% of their pay for housing. Note that the industry standard is 31%. Hlowever, many homeowners have been at the 50% level and been OK. For example, since property taxes and interest expense are still tax deductible a borrower could increase their payroll allowances to increase their take home pay. If you are considering doing this please check with your tax advisor first. Each homeowners circumstances are different but these days it would be wise to fully consider all the facts before making any decision.

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10th Nov 2009 by Tom Lindmark

That's an easy one. You should probably not pay more than 31% of your gross income for your mortgage. Now that includes not only the mortgage payment but also the payment for the insurance on the home, property taxes and any homeowner association fees. Keep in mind that I'm talking about gross income which means your income before income tax withholding and your social security payments, not your take home pay. Here's a big but though. If you have a lot of other debt like credit card bills, auto payments or student loans you have to take them into account. So add those monthly payments to your mortgage payment I talked about above and the total of your monthly payments shouldn't be much more than 40% of your gross pay. If it is you're asking for trouble. Remember that houses cost money over and above your mortgage payment. Plumbing needs repair, air conditioners wear out and roofs have to be replaced. Buying the most you can afford is dangerous as millions of people are discovering. A little prudence is well rewarded when it comes to buying a house.

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This answer is the subjective opinion of the writer and not of FinancialAdvisory.com